Colombia's Avianca faces rocky road after Chapter 11 filing

FILE - In this March 17, 2020 file photo, aircraft from the Avianca airline sit parked at La Aurora airport in Guatemala City. Aviancas Chief financial officer Adrian Neuhauser said the airline is asking various governments, including Colombias, for help in ensuring it has liquidity to operate during its Chapter 11 proceeding, which could last up to 18 months. (AP Photo/Moises Castillo, File) (Copyright 2020 The Associated Press. All rights reserved)

BOGOTA – Latin American airline giant Avianca is hoping to sail into smoother skies after a Chapter 11 bankruptcy filing – but it will take more to keep the region’s second largest carrier afloat.

Colombian Finance Minister Alberto Carrasquilla signaled Monday that a government loan isn’t off the table, though the nation is strapped for cash and might be limited in how much it can offer.

“We are looking for a way to be a piece of the solution,” he told BLU Radio. “The problem will require giving cash at some moment, for sure.”

Avianca is Colombia’s largest airline and has seen revenue plummet as key markets shut down all air travel. But unlike air carriers in wealthier nations, Latin America’s governments have been slow to boost the airline industry. Whereas the U.S. has spent billions shoring up distressed airlines, Colombia and other nations in the region have thus far taken only small steps to stop airlines from going under.

Avianca had pre-existing financial issues and a rocky relationship with much of the public, complicating government efforts to rescue it. At the same time, letting Avianca fail could bring about dire consequences for a country trying to make international tourism a key driver as it emerges from a half-century of civil conflict.

“It’s an emblematic company,” said Iván Montoya, an economic analyst. “We’d be left to the whims of carriers from other nations deciding who we are connecting to or not.”

Avianca was founded around the time of another pandemic – the Spanish flu – and has survived a century of turbulence including wars, bankruptcy and economic downturns to emerge as the behemoth that it is today. Pilots and crew members dressed in signature red cape uniforms now fly to over 75 destinations. Last year, the company celebrated its 100th anniversary, but talk of financial worries began to mount.

Shares fell in August after a video leaked online showing Avianca’s chairman warning staff that Colombia’s crown carrier was “broke.” The airline denied it was bankrupt but went about taking out loans, reorganizing debt and making changes to expand the number of passengers on flights.

Chief executive Anko van der Werff told reporters Sunday that Avianca had made good progress in the first two months of 2020 in both securing new financing and improving flight delays, a frequent complaint.

But COVID-19 has thrown any advances into disarray.

“Avianca is facing a challenge without precedent in its 100 years,” he said.

Company officials have been in talks with Colombia’s government to provide aid, but no concrete plan has been outlined, and some in congress are reluctant to back any sort of financial bailout – though President Iván Duque could act unilaterally.

Chief financial officer Adrián Neuhauser said Avianca is asking various governments, including Colombia’s, for help in ensuring it has liquidity to operate during the Chapter 11 proceeding, which could last up to 18 months. On the same day it announced the filing, Avianca also revealed that it will shut operations in Peru.

“COVID has left us no other option,” van der Werff said.

Congressman Fabio Arroyave said Colombia’s purse strings are tight and can’t possibly meet the demands of the nation’s airline carriers. Moreover, he said Avianca’s relationship with many Colombians has soured through the years. He noted instances where prices to travel within Colombia have become more expensive than a flight to Miami, making some feel the airline prioritizes international travelers.

Arroyave wants any government aid to be provided on strict conditions.

“There isn’t trust in this company,” he said.

Avianca isn’t the only Latin America carrier likely to need help.

Airlines across the region are expected to see an $18 billion drop in passenger revenues this year, according to the International Air Transport Association, which has called on government in Latin America to provide financial support.

Chile-based LATAM Airlines Group reports that 95% of its operations remain paralyzed. Worker salaries have been trimmed 50%. The company’s CEO has said LATAM will need aid, a plea initially discarded by Chile’s financial minister, Ignacio Briones. More recently he has suggested that some government assistance might be possible.

“Cases need to be evaluated one by one,” he said. “It’s not aid for the owners but the company, so that employees have their jobs.”

In Colombia, several financial analysts said despite the government’s slow response, they were confident eventually a deal will be worked out. Without a loan, they said it will be difficult for Avianca to survive on its own. And given the airline’s symbolic position in Colombia’s society, its failure would be seen as a national crisis.

“If Avianca doesn’t make it, things get very difficult,” said Gustavo Adolfo Toro, president of the Hotel and Tourism Association. “We’d be left disconnected.”